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Everything's Gonna Be Alright - Colorado E&Ps Learn to Deal with State's Tougher Rules

New, stiffer rules on well siting, drilling and production undoubtedly pose potential challenges to producers. After all, these changes typically impose further limits on what E&Ps can do on the acreage they control as well as new requirements. But like death and taxes, environmental regulation is a certainty that producers need to deal with and, if they’re lucky, they can find a way to work with new rules and minimize their impact on their businesses. That seems to be what’s happening in Colorado — home to the rebounding Denver-Julesburg (DJ) Basin and other production areas — which enacted a new oil and gas permitting law a couple of years ago and subsequently developed and implemented related regulations. As we discuss in today’s RBN blog, most producers seem to have figured out how to manage the new regs.

Colorado isn’t California and it isn’t Texas, and our guess is that, generally speaking, Coloradans are happy with that. The state’s got amazing mountains, crisp and clean air, awesome skiing and cool microbreweries, plus a strong economy, relatively low taxes, and great cities, towns and rural areas to call home. It also seems to have found an acceptable middle ground on the regulation of the oil and gas industry.

We first discussed the push to tighten Colorado’s oil and gas regulations more than four years ago, in Rocky Mountain High?, a blog about production and infrastructure in the DJ and Powder River basins and concerns among E&Ps there regarding Proposition 112, a referendum on the ballot in Colorado in November 2018. Prop 112, which ultimately was defeated by a 55%-45% margin, would have required that newly permitted wells on non-federal land be at least 2,500 feet (nearly a half a mile) from any occupied building (homes, schools, hospitals, etc.) and from “vulnerable areas” such as parks, streams and wetlands. (The state’s rules then called for only a 500-foot buffer between homes and wells and a 1,000-foot setback from high-occupancy structures such as schools and hospitals.) While the rules would have applied only to non-federal land and to newly permitted wells, there is hardly any federal land within the DJ Basin, and a pre-election study determined that 78% of the surface area (and 85% of the non-federal lands) in Weld County, CO — the epicenter of DJ Basin production — would be off-limits for new permits if the referendum was approved.

Proponents of tighter oil and gas regs regrouped, and in 2019, Colorado’s then newly elected governor, Democrat Jared Polis, and the Democratic majorities in both houses of the state legislature enacted Senate Bill 19-181. The law, generally referred to as SB 181, forced a number of significant changes. Among other things, it:

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